Question
You are considering opening a new business to sell dartboards. You estimate that in order to start the business, your manufacturing equipment will cost $100,000
You are considering opening a new business to sell dartboards. You estimate that in order to start the business, your manufacturing equipment will cost $100,000 and facility updates will cost $200,000. You are able to raise $120,000 from investors with a promise of a 12% return on their investment. Your bank has agreed to loan you the remaining $180,000 at a 7% rate of interest. You estimate that you will bring in $50,000 per year in profit and that your equipment and facility updates will last 10 years. Thus, in the current year (year zero), you incur a $300,000 cost, and in years one through ten of your investment, you make $50,000 in profit each year.
Using your WACC as a measure of your discount rate, what is the Net Present Value of your investment (round to the nearest dollar - I recommend using Excel for this)? What does this tell you about the profitability of your investment?
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